Sentiment, Factory Data Show Only Moderate Growth

Consumer sentiment edged off a six-year high in June while manufacturing output picked up a bit last month, suggesting the economy remained on a moderate growth path.

Other data on Friday showed wholesale prices rose more than expected in May as gasoline and food prices rebounded, but underlying inflation pressures remained muted.

The reports come ahead of the Federal Reserve meeting next week where policymakers will discuss when to start scaling back their $85 billion a month bond-buying pace. Economists saw no shift in bias.

"This is not a game changer. I expect that next week the Fed will reaffirm its current policies," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The Thomson Reuters/University of Michigan's preliminary index on consumer sentiment fell to 82.7 in June after touching a near six-year high of 84.5 in May.

Still, June's reading was the second highest in the last eight months, suggesting Americans were far from gloomy about their long-term prospects. Economists were encouraged that sentiment had not declined significantly early this month and saw this as underpinning consumer spending.

"While preliminary June consumer sentiment slipped slightly, the proximity of the headline index to cycle highs continues to suggest that consumer attitudes remain positive, a likely positive factor for future consumer spending," said Gennadiy Goldberg, an economist at TD Securities in New York.

Although U.S. consumers have shown resilience in the face of higher taxes and the economy continues to create jobs at a steady if unspectacular pace, the factory sector has suffered from a recession in Europe that has weighed on global growth.

In a separate report, the Fed said factory output edged up 0.1 percent last month after two back-to-back declines. Overall industrial production was unchanged, held back by a big drop in utilities output.

"The slight improvement in May suggests improving domestic demand is helping offset the negative impact on exports of recent softening in overseas demand," said Ted Wieseman, an economist at Morgan Stanley in New York.

Separately, the Labor Department said its seasonally adjusted producer price index increased 0.5 percent in May after declining 0.7 percent in April. A Reuters survey of economists had forecast a rise of just 0.1 percent.

Despite the pick-up in prices received at the nation's farms, factories and refineries last month, underlying price pressures remain muted and modest domestic demand makes it difficult for producers to pass on their increased costs.

In the 12 months through May, the so-called core PPI advanced 1.7 percent after rising by the same margin in April and March. The overall PPI was also up 1.7 percent after rising 0.6 percent in the period through April.

U.S. stock prices were lower, while Treasury debt prices were up slightly. The dollar was mostly flat against a basket of currencies.

Signs of fundamental strength in the economy despite a tighter fiscal policy in Washington could move the Fed closer to a decision to trim the bond purchases it has been making to keep interest rates low and boost the economy.

But the low underlying inflation backdrop and weakness in manufacturing make it unlikely the central bank will make any changes next week.

Energy prices accounted for more than 60 percent of the increase in wholesale prices last month.

Food prices rose 0.6 percent after a 0.8 percent drop in April. Food prices were pushed up by a record surge in the wholesale price of eggs, which accounted for 60 percent of the rise in the food index.

Away from food and gasoline, passenger car prices fell 0.5 percent, while light truck prices increased 0.4 percent. The increase in light trucks accounted for almost two-thirds of the rise in core PPI last month.